Retailers in land of rising sums discover discounting is profitable

By
Junko Fujita, Special to The Christian Science Monitor /
November 16, 1994

TOKYO

KNOWN for its $50 steaks and $6 cups of coffee (no refills), Japan is starting to discover a very American concept: discounting.

Four years of recession and little sign of an economic upturn have produced tight-fisted consumers. To get Japanese shoppers to loosen their purse strings, retailers and manufacturers are dropping prices on everything from colas to cars. An all-out price war or kakaku hakai is underway.

Since this summer, Daiei Inc., Japan's largest supermarket chain, has been selling a can of cola - imported from the United States - for about 40 cents. That's less than half of the price of Coca-Cola or Pepsi-Cola brand soft drinks made in Japan. The supermarket also introduced American beer for $1.40 a can, substantially less than the $2.25 charged for most Japanese beer.

``We are offering prices that people overseas are normally charged,'' says Kazuyo Nishimura, a Daiei's spokeswoman, adding that the US brewed beer sales were 3.5 times higher than expected.

Ms. Nishimura says that, in order to save cost, Daiei imports those products directly from US manufacturers without middlemen. The company also uses US-made aluminum cans because the strong yen makes material purchased from the US cheaper than in Japan.

Japanese retailers are taking advantage of the strong yen to import more, says Kimindo Kusaka, president of the Softnomics Center, a Tokyo-based economic research organization. ``That is how the retailers get into the price wars.''

``People don't want to spend money,'' says Kikuo Yamaguchi, head of the Institution for Consumer Behavior, a research group in Tokyo. ``Their income has stagnated because of the bad economy, and they have started to wonder why they have to spend so much money on consumption.''

According to Japan's National Tax Agency, the average annual salary of Japanese workers, which had been growing every year by about 3 percent, dropped by 0.6 percent in 1993, the first drop since 1949.

Yamaguchi also notes that since many Japanese - more than 12 million a year - have traveled overseas, they know how expensive products are in Japan.

This is not the first price war in Japan. But what makes this ``completely different'' from past price wars is that even large manufacturers and retailers are participating, Yamaguchi says.

Toyota Motor Co., recently launched a new model called RAV4, or Recreational Active Vehicle with four-wheel drive, designed for urban and rural driving, the company says.

``We've manufactured a car that meets the current consumer need,'' says Mie Aoyama, a Toyota spokeswoman. ``In a bad economy, they want simple and practical cars.''

The new model costs about $16,000, a relatively affordable price by Japanese standards. To date, sales are twice as high as expected, Ms. Aoyama says.

In order to keep the price of the RAV4 low, Toyota uses the same parts - such as engines, steering wheels, and door mirrors - found on other popular models, Aoyama says.

The surge in imports of lower-priced US cars has also forced Japanese auto manufacturers to reduce costs, says Nobuhiko Shima, an economic journalist.

Skylark Company, a Tokyo-based nationwide restaurant chain, recently slashed prices on its entire menu and changed the restaurants' name to Gusto. Some of the dishes are as cheap as ones sold 25 years ago when the company opened its first restaurant.

``We realized that our prices were a little too expensive for a family restaurant,'' says Keiji Mikami, a company spokesman.

At Gusto, customers now seat themselves and serve their own coffee and tea.

This do-it-yourself style enabled the company to reduce the average price of a dish from $10 to $7.50, says Mr. Mikami. The strategy appears to work: The number of customers has increased by 160 percent over the same period last year.

Overall, Shima says the current price war is stimulating consumer demand and having a positive effect on the Japanese economy. ``We are now at the doorway,'' he says, to a new pricing scheme.

However, he predicts, the real savings won't be seen for another 10 years, when the ``price wars'' start to bring down the price of land, housing, and public utility services.

The cost of building a house in Japan is three times higher than in the US, Shima says.